The Government is facing a huge £59.2 billion tax shortfall from unpaid taxes, despite Treasury efforts to bring in more revenue, according to alarming figures from HM Revenue and Customs (HM Revenue and Customs).
Small businesses account for almost two-thirds of the UK’s tax gap, as Chancellor Rachel Reeves continues to put pressure on employers with recent rises in National Insurance and the National Living Wage.
Latest figures show HMRC collected £865.2 billion during the 2024–25 tax year, covering 93.6 percent of all tax owed.
That leaves an estimated tax gap of 6.4 percent — the difference between what the Treasury expected to collect and what was actually paid.
Data shows small business non-compliance made up 62 percent of the 2024–25 tax gap, the biggest share among all taxpayer groups.
Experts say much of this is linked to unpaid corporation tax, with the corporation tax gap rising sharply to 18.1 percent over the last financial year.
The biggest cause of unpaid tax was failure to take reasonable care, often driven by carelessness or negligence, while simple errors ranked second.
HMRC said outright tax evasion accounted for 12 percent of the 2025–26 tax gap.
Rachael Griffin, tax and financial planning expert at Quilter, said closing even part of the £59.2 billion gap could significantly help public finances without the need for major tax hikes.
She added that making the system easier for small businesses and new self-assessment taxpayers could be just as important as changing tax rates, arguing that simplifying the increasingly complex tax system should be a top priority.
HMRC chief executive JP Marks said tackling non-compliance is becoming harder through traditional methods alone.
He said the goal is to build a modern tax system that makes it easier for people to get things right the first time while making tax abuse harder and helping authorities crack down on criminal activity.
HMRC’s figures also revealed the UK’s wealthiest individuals failed to pay £3.6 billion in taxes last year — more than any other group.
Caitlin Boswell of Tax Justice UK said it is unacceptable that the super-rich continue avoiding their fair share while many ordinary people struggle with rising living costs.
She warned that lost tax revenue is depriving the country of vital investment and said any future Prime Minister and Chancellor must confront the issue to create a fairer tax system and raise funds for meaningful public improvements.
